A $30,000 withdrawal from your own retirement savings shouldn’t feel like it comes with a surprise invoice from Ottawa. Yet for some retirees, that’s effectively what can happen.
Registered Retirement Income Fund (RRIF) withdrawals count as taxable income. Once enough pension, Canada Pension Plan (CPP), Old Age Security (OAS), investment income, and RRIF cash land on the same tax return, OAS can start disappearing as well.
For 2026, the OAS recovery tax range begins at $95,323 of net world income. Above that threshold, the recovery tax generally takes back 15% of the excess. That can make one unusually large RRIF withdrawal considerably more expensive than it first appears.
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Watch what happens to $30,000
Suppose a retiree has $90,000 of net income before taking an additional $30,000 from an RRIF. That withdrawal pushes income to $120,000, or $24,677 above the 2026 OAS threshold. Applying the 15% recovery tax produces roughly $3,702 of OAS repayment.
| SCENARIO | AMOUNT |
|---|---|
| Income before extra RRIF withdrawal | $90,000 |
| Additional RRIF withdrawal | $30,000 |
| New net income | $120,000 |
| Amount above OAS threshold | $24,677 |
| Approximate OAS recovery tax | $3,702 |
That comes on top of regular income tax on the RRIF withdrawal itself. Suddenly, raiding the RRIF for a new roof or an expensive trip looks rather less innocent.
The problem can become harder to avoid with age. An RRSP must generally be converted by the end of the year you turn 71. For a typical RRIF, the minimum withdrawal factor at age 72 is 5.4%. So a $500,000 RRIF would require roughly $27,000 to come out that year even if the retiree doesn’t particularly need $27,000.
More options
This is why I wouldn’t automatically leave every RRSP dollar untouched until the last possible moment. Someone retiring in their early 60s with relatively little taxable income might consider making controlled RRSP withdrawals before CPP, OAS, and mandatory RRIF withdrawals all arrive. Paying some tax earlier at a lower marginal rate can sometimes reduce a much larger taxable-income pile later.
I’d also want a substantial portfolio inside a Tax-Free Savings Account (TFSA). TFSA withdrawals generally aren’t taxable and don’t increase net income for OAS purposes, making that account a wonderfully useful retirement pressure valve. That makes the stocks accumulated there important, too.
GWO
Great-West Lifeco (TSX: GWO) feels particularly appropriate here. Through businesses including Canada Life and Empower, Great-West provides insurance, workplace retirement plans, wealth management, and other financial services across Canada, the United States, and Europe.
Its retirement business is getting larger. Empower recently agreed to acquire Milliman’s retirement-plan and benefits-administration business for US$340 million. The deal is expected to add approximately US$130 billion of client assets and 1.5 million plan participants at closing.
Meanwhile, Great-West’s second-quarter base earnings per share increased 15% to $1.42, while base return on equity reached 19.3%. Those are the two numbers I’d watch most closely because they show both earnings momentum and strong profitability.
Add-on income
The dividend adds another layer. Great-West raised its quarterly payment 10% this year to $0.67 per share, or $2.68 annually. Around $90 per share, that produces a yield near 3%. That’s the sort of dividend growth I’d like from Canadian dividend stocks sitting in a TFSA for years before retirement. Here’s what that $27,000 could bring in, for example.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | ANNUAL DIVIDEND | ANNUAL TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| GWO | $90.00 | 300 | $2.68 | $804.00 | Quarterly | $27,000.00 |
Great-West isn’t cheap after a strong share-price run, trading around 19 times trailing earnings. Market declines can hurt wealth-management results, insurance assumptions can move against it, and acquisitions bring execution risk. Yet that dividend certainly helps.
Bottom line
Retirement planning is partly about creating choices before the government starts creating them for you. Building more TFSA income, managing RRSP withdrawals earlier, and avoiding one giant taxable-income year could leave considerably more of your OAS where you probably wanted it: in your pocket.
